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Greg Gibbs, Analyst at Amplifying Global FX Capital, suggests that although the New Zealand GDP data suggest that the economy is running fast enough for the RBNZ to retain its forecast that rates have bottomed, albeit likely to remain steady at 1.75% for some time, they are not convinced.  

Key Quotes

“The business and consumer survey data suggest that growth will be weaker in the second half of the year; keeping average growth over the year below potential.”

“New Zealand reports headline GDP on a production basis (in contrast to most other nations that focus on expenditure-based GDP).”

“The production-based GDP rose 1.0%q/q and 2.8%y/y in Q2-2018, above 2.5% expected.   On a year-ended basis, the result is still below the RBNZ’s perceived potential growth rate of 3.1%.”

“The expenditure based GDP rose 1.2%q/q and 3.0%y/y. Using either measure it was a strong quarter after a lacklustre three quarters.”

“We would be looking to fade the strength in the NZD with recent business and consumer surveys pointing to a weaker growth outlook.”

“Another negative consideration for the NZD is a deterioration in its external balance in the last few quarters to around its lows since 2012 (-3.6% current account deficit in Q2), falling behind Australia (-2.9%).”